The lights going out as the economy crawls

Last night I gave a lecture to 300 professional and business people in the Sainsbury Wing of the National gallery. I presented my views on the true origins of the Credit Crunch and the continuing errors of monetary and fiscal management. No one in the discussion which followed queried my thesis that the Monetary and regulatory authorities were a central cause of the crisis – a view familiar to readers of this website.

Today people are at last waking up to the real threat that we will run out of power ere long, if cold winters coincide with modest economic recovery and if no more power stations are built quickly. This is something I have been warning about for years in the Commons, asking the government to make decisions about replacements for the ageing nuclear stations and the coal stations that the EU rules are closing. They have dithered instead of getting on with issuing the permits and licences required to replace them with more nuclear or something else. Our only option now to keep the lights on is to build some gas powered stations rapidly.

In the Economic Policy Review I repeated the urgency of sorting out this problem. We said “We also believe that government needs to provide leadership in tackling the large number of capacity problems and bottlenecks which have emerged in the UK’s ageing infrastructure. The UK may be an island of coal set in a sea of oil and gas, but it came close to running out of energy in 2006” “We examine ways in which private capital and competition can be harnessed to ensure more plentiful supplies of transport network capacity, of energy and water”. Two years later, and we are still awaiting some decisions which will allow the construction of new power stations.

I also see others are now revising their view of the UK’s long term rate of growth. I have long been saying that it is likely to be 1.5% rather than the 2.75% the Treasury claims. The higher taxes go and the more debt that builds up, the lower the long term rate of growth is going to be. At least if they do succeed in putting the lights out we wont see how bad its got.

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23 Comments

  1. backofanenvelope
    Posted February 4, 2010 at 11:10 am | Permalink

    In this mornings Daily Telegraph it says that the first crunch time for power generation will come in 2016 when some EU directive comes into force. Why don’t we just tell the EU we will take another ten years to enforce this directive? What are they going to do us if we just ignore them?

    We could also start a programme to prolong the life of the existing nuclear power stations.

    While I am ranting – why not solve the gas storage problem by building a fleet of gas tankers manned by the RFA. They could fill up during the summer and then anchor for the winter.

    • Stuart Fairney
      Posted February 4, 2010 at 5:30 pm | Permalink

      "What are they going to do us if we just ignore them?"

      Presumably enforce the same punitive sanctions that kept the Greek budget deficit within the 3% limit* which is a condition of Euro membership…. or in other words….

      (*as I am sure you know, it's about 12% at the minute not counting 'secret' defence spending and the EU is talking of giving them money !!)

  2. Mark
    Posted February 4, 2010 at 12:32 pm | Permalink

    Building CCGT stations is going to take too much time, even if it is less time than trying to build new nuclear stations. Allowing existing coal stations to continue by securing a derogation from the EU is by far the simplest solution and also the lowest cost. By taking advantage of the full life of these stations capital is not wasted, and when they ultimately have to be replaced the replacing technology will be better than today's. As Bill Gates pointed out, if there is a real desire to achieve an 80% carbon reduction by 2050, you won't get there by investing early in today's technology without in turn having to throw it away early. The wasted cost would be better spent on research or other needs.

    • Mark
      Posted February 5, 2010 at 9:38 am | Permalink

      You have probably seen or heard BP's Tony Hayward voicing his opinion:
      http://www.guardian.co.uk/business/2010/feb/04/bp

      He considers windmills a folly, gas a panacea and nuclear an important answer going forward. Because he is disparaging carbon capture, he doesn't address what should be done with our existing coal – and since he is writing for the Guardian, there are probably some llimits on how far he can upset a readership that is in consternation of the unravelling of the warmist green mantra.

      • DBC Reed
        Posted February 5, 2010 at 3:01 pm | Permalink

        Be fair The Guardian is doing a lot to unravel the warmist green mantra with Fred Pearce and all.

        • DennisA
          Posted February 5, 2010 at 5:22 pm | Permalink

          Fred Pearce has seen the way the wind is blowing and decided he doesn't want to be on the wrong side. The real unravelling has been done by Eureferendum.

  3. AT
    Posted February 4, 2010 at 12:41 pm | Permalink

    The ofgem report
    http://www.ofgem.gov.uk/Media/PressRel/Documents1

    ( Analysed on this link http://eureferendum.blogspot.com/2010/02/gone-nat… )

    pretty well endorses your analysis.

    They don’t actually say the lights will go out, just need “ an improved ability of the demand side to respond”.

  4. no one
    Posted February 4, 2010 at 2:15 pm | Permalink

    You should put a diary up here when you are planning to make speeches

    I for one would be interested to bring the family along and listen sometime

    Presumably some of them are open to the public

    Cheers

  5. Stuart Fairney
    Posted February 4, 2010 at 2:58 pm | Permalink

    Economic policy from Zanu-PF through printing money and energy policy from the ANC who have governed the lights going out in South Africa.

    • Mark
      Posted February 4, 2010 at 5:20 pm | Permalink

      Nice irony! I was actually involved in trying to advise Eskom a decade ago. They heard, but wouldn't listen because they couldn't sell answers to politicians.

  6. grahams
    Posted February 4, 2010 at 4:43 pm | Permalink

    The 2003 Energy White Paper has a lot to answer for. Thank you Michael Meacher. But so has the competitive energy trading system called NETA, which ensures that the price is set by the diominant fuel ( gas, which for some reason tracks oil) and makes investing in any other fuel source wildly risky. Shortages from 2015 were predicted when NETA was set up for this reason. Incidentally, the energy regulator of the time, who presided over 40 per cent of the apparently dead safe generating industry going bust or having to be rescued, went on to head the Financial Services Authority with the consequence that …. Thank you Sir Callum.

  7. gac
    Posted February 4, 2010 at 6:15 pm | Permalink

    John, does the inner circle of the Party ever ask for your advice? And if it does, does it ever accept it?

    They really do need somebody on the front bench with a forensic mind but who is not an Academic.

  8. Posted February 4, 2010 at 7:11 pm | Permalink

    What annoys me about your posts on water and energy is that I was going to post on the same subjects and you beat me to it. Gnashing of teeth etc. As for water the potential for a serious shortage is increasing rapidly and there needs to be action soon. With energy this government has had 12 years and completely wasted its time. In one patch of our district there are now regular outages and disruptions. This pattern will be spreading steadily over the next few years. In 2012 will the government be cutting off power in some places to guarantee it for the Olympics as China did?

    • Stuart Fairney
      Posted February 5, 2010 at 6:34 am | Permalink

      Could I ask where this district is? I ask because I did not know things had reached this stage yet.

      • Posted February 5, 2010 at 2:03 pm | Permalink

        We pick up some of our food from a farm shop at Langley in Kent, a semi-rural area south of Maidstone. It is the sort of place where you can chat to the staff as in days of old. They were telling me of persistent outages over the last few months and how they have to manage the fridges and freezers. Although we did not have the outages we had noticed odd flicks and blinks etc. in our service and at the same time. Our SkyHD box is sensitive to these and I have found it necessary to reboot a few times in the last months.

  9. Posted February 4, 2010 at 7:36 pm | Permalink

    As a retired Electrical Engineer, I'm surprised that we didn't have electricity cuts during the recent cold spell. I suspect it was pure luck that the bulk of our generating plant was available and there were no major failures.
    Although I'm a great believer in a free market, one of the things about private companies is that when they invest in plant and machinery they like to get maximum utilisation out of it, keeping it working 24/7 if possible. The problem is that in the summer, we require considerably less generation capacity and thus plant is lying idle. What incentive is there for any company to provide equipment that they may only need to use for maybe a third of the year or when the wind stops blowing?
    If you add the facts that the population is growing and we all now have more electrical gadgets in the home to the facts that the existing generating plant is all ageing and no major new plant has been built for years, it seems to me that we are heading for disaster. This has happened in South Africa where regular power cuts are now a way of life.

    • Mark Parker
      Posted February 5, 2010 at 5:19 pm | Permalink

      Don't forget the government did intervene. They told some heavy industrial users of gas to wind down their consumption. That kept the lights on for the domestic consumer.

  10. emale
    Posted February 4, 2010 at 8:36 pm | Permalink

    As present, I'm struggling to find a reason to vote for the Conservative Party.

    If enough of your colleagues could be persuaded to ensure that you become the Chancellor of the Exchequer after the next General Election, I would certainly vote for the party I have supported in every election since 1972.

  11. THE ESSEX BOYS
    Posted February 4, 2010 at 11:25 pm | Permalink

    Mark and 'Back of the Envelope ' above have the right idea on the EU directive deferment. Short-term planning has become more important than the long-term thanks to Labour's derogation of duty.

    The last time this was a topic here some time ago we gave our view that this was such a scary scenario that it could be a real Tory vote winner given some urgency within the party.
    We can't recall that call being heeded and – in our new mode of being far more searching and critical of the party's direction – we ask just what is the Conservative policy and timescale for major progress?

    Today we sent to each member of the shadow cabinet and other leading Conservative MPs and political commentators a copy of our blog here last night in which we made a plea and proposals for more direction and tightly focused action plan.

    With a 15 point lead in the polls and a demoralised PM and Labour party a few months ago we foresaw a break from activism but we fear the lead is being squandered and its time to sharpen our quills!

  12. backofanenvelope
    Posted February 5, 2010 at 10:28 am | Permalink

    As usual I have no idea what the Tories propose to do about the problems Mr Redwood lays out so clearly.

  13. Posted February 5, 2010 at 11:53 am | Permalink

    Energy availability is the key to growth. The developed world gets an average of $4 of GNP per kw. China is at $2.5 which explains much of their growth. We are at $6.14 which makes us the most electricity poor developed countries after Ireland, whose grid is dependent on Scottish nuclear & Singapore & Hong Kong which are city states. Our government are committed to halving our energy use which, if the economy neither grew nor receded would give us similar ratios to Sri Lanka & Bangladesh.

    We can build new reactors for $1 bn in 3 years if government will simply stop preventing this. Even starting building them would produce the confidence to end recession.

    Might have to take some soldiers out of Afghanistan to put round the building sites & prevent eco-fascist terrorism. Since I consider eco-fascism a far greater threat to western civilisation than al Quaeda I would be happy with that. I suspect most of the soldiers would too.

  14. Lindsay McDougall
    Posted February 6, 2010 at 4:11 am | Permalink

    I thought I would see what the official Conservative document "Eight benchmarks for Britain" had to say on the subject. Section 8 "Build a greener economy" lists the following energy production goals:
    – Diverse range of electricity generating capacity
    – Huge increase in renewable power
    – Feed-in tariffs to national grid to encourage micro-generation
    – Expand offshore wind & marine power in large scale Marine Energy Parks
    – Economically viable nuclear power by speeding up the planning process

    All right so far as it goes but what is the implementaion time scale? I expect that we will need a few years of more gas generated power as a stop gap. What has this government been doing for this last 13 years?

  15. Posted April 29, 2010 at 9:16 pm | Permalink

    It’s always a good thing to find information relevant to what I am looking for. Cheers!

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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